Shareholders push for stronger offer
EasyJet and several of its investors are looking for at least £600 million more from U.S. suitor Castlelake, according to leading shareholders and people familiar with the discussions.
The UK low-cost airline rejected Castlelake’s latest proposed offer of £4.7 billion, equal to 625p per share, on Monday. The move followed two earlier approaches from the private credit group in recent weeks.
Board says offer undervalues airline
EasyJet said Castlelake’s proposal “still fundamentally undervalues easyJet and its prospects”. Castlelake responded by saying it would take the proposal directly to shareholders because of the airline board’s “unwillingness to engage meaningfully”.
Several investors said easyJet’s board was right to reject the offer without opening formal negotiations.
Investors point to £7 per share threshold
One large investor said the board would likely begin talks only if Castlelake raised its price meaningfully.
“I think they’ll engage if the price is at seven plus,” the investor said, referring to an offer of at least £7 per share, which would value easyJet at about £5.3 billion.
“If you look at the book value of the fleet, the holiday business, the price should be nearer seven than six,” the shareholder added. “Even at seven it’s not wildly expensive as a take-out.”
Holiday business seen as underpriced
Another top investor said easyJet should consider engaging if the offer “starts with a seven”. The investor argued that the current proposal did not properly reflect the value of the airline’s aircraft fleet or the longer-term growth opportunity in its holidays division.
He added that the board was “probably thinking about in theory what their valuation could be in two to three years. I’m sure they could do some maths and get quite a lot higher than 625p”.
Deadline approaches for formal bid
Castlelake said its latest approach of 625p per share represented a level easyJet’s stock had not reached since February 2022. The group has until 5 p.m. on Friday to submit a formal offer.
EasyJet shares rose only 2.8% on Monday to £5.18, suggesting investors did not expect an imminent agreement at Castlelake’s current proposed price.
Refusal to engage raises questions
Castlelake appeared surprised by the board’s refusal to hold discussions despite repeated approaches. One of easyJet’s top investors also said they were “surprised” that the airline had not engaged with the suitor at all.
“My sense is your job is to engage in these sorts of areas,” the investor said.
One person familiar with the talks said that opening discussions with Castlelake could have suggested the proposed price was close to acceptable. EasyJet’s firm rejection signalled that the board wanted a substantial increase before considering any offer, the person said.
EasyJet to consult investors
With the potential offer level now public, easyJet is expected to speak with many of its investors in the coming days to assess their reaction to Castlelake’s approach.
The airline’s shares have not traded above £7 since 2021. They fell from £12 early in the pandemic and have not fully recovered since then.
Bid described as opportunistic
One former shareholder said Castlelake’s bid was “opportunistic”, but added that easyJet’s weak share performance had “in part been due to the company failing to meet expectations in the last few years”.
Airline points to future growth
EasyJet believes new aircraft deliveries and expansion in its holidays business will leave the company in a stronger position over the coming years. The incoming planes are up to 40% more efficient, and the airline has set a medium-term target of £1 billion in profit.
Some analysts believe that once the current period of heavy investment ends, easyJet could increase returns to shareholders. That could include share buybacks similar to those used by Ryanair and IAG, the owner of British Airways.
Asset value seen far above share price
Andrew Lobbenberg, airlines analyst at Barclays, calculated that easyJet’s assets, including aircraft orders and take-off slots, could be worth as much as £11.35 per share. That would represent one of the largest gaps among European airlines between the company’s market value and the potential worth of its assets.
